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Clearly there are issues with the way we measure income inequality in the US. But any way that I can measure it, I still see that there seems to be an actual increase in it. This is NOT a post on whether you should be concerned about that. It is, rather, a simple methodological post. People have all kinds of pet stories for why inequality seems to be increasing. And I am almost sure there many “correct” reasons – I favor demographic explanations, others favor “skill-biased” technical change, others favor class-struggle stories, other stories exist too. But, whatever your story is, you should understand that the trends in inequality are not unique to the United States.

Yes, measured Gini data indicate inequality is higher in America than in many other places, but look at the data for almost any OECD country over the past 40 years. With few exceptions there have been sizeable increases in inequality in those places. Here is a database that allows you to track income shares among the top across a variety of countries and over time. Whatever your story is about the U.S., it is a pretty good starting point to ask yourself whether you believe the same thing is happening in other countries. It’s surely possible that different factors cause inequality in all the OECD countries, but the trends are not unique to the USA.

And yes, there are some exceptions in the data. Check out France for example.

 

3 Responses to “You Need a Better Explanation”

  1. Speedmaster says:

    I’ve read that the Gini measurement is badly biased in that it does not take into account welfare, food stamps, heating assistance, free school breakfasts/lunches, etc.

  2. Speedmaster says:

    Here we go, found it.

    The Mismeasure of Inequality – Hoover Institution: “We will show that much of what has been reported about income inequality is misleading, factually incorrect, or of little or no consequence to our economic well-being. We will also show that middle-class incomes are not stagnating; in fact, middle-class incomes have risen significantly over the 29 years covered by the cbo study. Lastly, we will address assertions that the rich are not paying their “fair share” of taxes.

    The U.S. Gini coefficient cited here comes from an annual report of the Census Bureau, which uses what it calls “money income” in its measurement of income inequality. Money income, which is the definition of income typically used in public references to inequality, consists of cash income only, does not subtract taxes, and excludes the value of noncash transfer payments (such as nutritional assistance, Medicare, Medicaid, and public housing), as well as many other components of income. In addition to transfer payments, which are a substantial portion of income at the low end of the income scale, some of the other missing components of income are: employer-provided fringe benefits (primarily retirement benefits and health insurance, which can amount to as much as 30 percent of income), capital gains, imputed rent from owner-occupied housing, and increases in the value of home equity. We believe excluding these items renders this measure of income inequality relatively meaningless.”
    http://www.hoover.org/publications/policy-review/article/123566

  3. chuck martel says:

    Gee, what about inequality in height, weight, intelligence, appeal to the opposite sex (or the same sex, not that there’s anything wrong with that), or a host of other things? Do the equalitarians demand that we all have exactly the same amount of wealth or income or whatever it is they’re measuring? Or are the differences just a little too much out of whack? Since poverty as it’s been historically defined doesn’t even exist in the US, the problem can’t be that the well-to-do are taking food out of the mouths of the lower classes. And we really don’t hear much from those not-so-affluents about the issue. Most of the verbiage is generated by pseudo-intellectuals that claim to be advocates for the downtrodden. But in the land of cherished democracy, who cast the votes that give these geeks the authority to speak for others? It’s doubtful that the barbers of America or the mechanical engineers or the gynecologists would accept me as their spokesperson, why do poor people accept the advocacy of the do-gooders? Or, in fact, do they? How do we know that someone that’s scraping by on $15K a year even cares if Steve Schwartzman is making a billion? This whole national semi-conversation is a digression created by lefty elites. Pay it no mind.

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